Answer:
The bad debt expense should Barley record for 2021 is $502,000.
Explanation:
To arrive at the bad debt expense for Barley, we simply need to calculate 2% of Farley’s gross accounts receivable have been uncollectible, as follows:
2% of $18,600,000 = $372,000
Note that there was a write-off of $662,000 of accounts receivable, the following entries will apply with respect to the write-off:
Debit Allowance for doubtful accounts $662,000
Credit Accounts receivable $662,000
<em>(To record the write-off during the year)</em>
The impact of this write-off on allowance for uncollectible accounts is: $532,000 - $662,000 = $130,000 (debit)
In order to reinstate the allowance account to $372,000, we simply need to add $130,000 to arrive at bad debt expense of $502,000.
